Roth Conversion

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zguy
Posts: 10
Joined: Wed May 16, 2018 4:03 pm

Roth Conversion

Post by zguy » Wed May 16, 2018 4:36 pm

Hi Everyone,

Thank you in advance to everyone on this forum, it has provided a wealth of information and endless help for me! Have a question that I'd appreciate some guidance on.

Me and my wife both have a traditional IRA funded exclusively with non-deductible contributions over the last two years. Currently both accounts sit at approximately $15,000 with $11,000 basis in each and plan on contributing the max this year as well.

Is there any better way of getting that money into our Roth IRAs through the backdoor method than just converting it and paying the taxes on the approximately $8k?(solidly in 24% bracket) Is rolling only the amount greater than our basis into each of our 401k accounts a legal and better option and then just converting the basis amount directly to roth with no tax due?

Her 401k has good options with low ERs around 0.05, lowest available in mine is an SP500 fund at 0.71. Also if we can roll money into the 401k does that affect the yearly contribution limits? Everything going to roth will go into VTSAX.

Thanks for the help!

Silk McCue
Posts: 1127
Joined: Thu Feb 25, 2016 7:11 pm

Re: Roth Conversion

Post by Silk McCue » Wed May 16, 2018 7:10 pm

Welcome to Bogleheads.

Do you have room to add $8k to a 401k to offset the gaIn in the IRA so that you can convert with the taxable conversion amount offset?

Cheers

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Duckie
Posts: 5954
Joined: Thu Mar 08, 2007 2:55 pm

Re: Roth Conversion

Post by Duckie » Wed May 16, 2018 7:21 pm

zguy wrote:Is there any better way of getting that money into our Roth IRAs through the backdoor method than just converting it and paying the taxes on the approximately $8k?(solidly in 24% bracket)
Yes.
Is rolling only the amount greater than our basis into each of our 401k accounts a legal and better option and then just converting the basis amount directly to roth with no tax due?
And that's the better way. Yes, it's legal, but your 401k plans have to accept incoming rollovers. Not all do.
Her 401k has good options with low ERs around 0.05,
Great.
lowest available in mine is an SP500 fund at 0.71.
Yuck, but it's only an extra $4K.
Also if we can roll money into the 401k does that affect the yearly contribution limits?
No. A rollover is not a contribution.

zguy
Posts: 10
Joined: Wed May 16, 2018 4:03 pm

Re: Roth Conversion

Post by zguy » Fri May 18, 2018 7:27 pm

Thanks for the great response Duckie.

Silk, not sure I'm getting what you're getting at. Could you elaborate a little bit? My 401k is just about maxed for the year, hers still has some room.

Silk McCue
Posts: 1127
Joined: Thu Feb 25, 2016 7:11 pm

Re: Roth Conversion

Post by Silk McCue » Fri May 18, 2018 8:11 pm

zguy wrote:
Fri May 18, 2018 7:27 pm
Thanks for the great response Duckie.

Silk, not sure I'm getting what you're getting at. Could you elaborate a little bit? My 401k is just about maxed for the year, hers still has some room.
If you can increase your tax deferred contribution to the 401k this year by the amount of the gain in the non-deductible IRA ($8k) you could then convert the full non-deductible to Roth without a net gain in taxable income. Thus the offset I mentioned. This approach would maximize your Roth space.

Cheers

zguy
Posts: 10
Joined: Wed May 16, 2018 4:03 pm

Re: Roth Conversion

Post by zguy » Tue May 22, 2018 9:29 am

So I found out that both plans do allow roll in contributions. It seems like this would be the best way to proceed forward since I can still maximize the Roth space and the extra money into the 401k plans won't affect 2018 401k contributions as mine is basically maxed for the year. Thank you both for the help!

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